Strong consumer spending and the performance of the dominant service sector have made Britain’s businesses increasingly confident about their prospects over the next two years, according to the British Chambers of Commerce.
In its quarterly health check of the economy, the BCC said it was upgrading its growth forecast for the next two years amid signs that its members were shrugging off international uncertainty and concerns about the outcome of the general election in May.
The BCC said it was now believed that national output would grow by 2.7% in 2015 and 2.6% in 2016 – up by 0.1 percentage point and 0.2 percentage points respectively. Growth in the first quarter of 2015 is predicted to accelerate from 0.5% to 0.7%.
Consumer spending is likely to be supported by the continuation of the UK’s ultra-low interest rates, which have been at 0.5% for the past six years. The BCC said it did not expect the Bank of England to start pushing up the cost of borrowing until the first quarter of 2016 at the earliest.
John Longworth, the BCC’s director general, welcomed the growth upgrade but warned of the dangers of the economy becoming too dependent on consumer spending.
“We are upgrading our UK growth forecasts for 2015 and 2016 because businesses up and down the country are doing well – despite international and domestic uncertainty,” Longworth said.
“While 2015 has got off to a good start, there is no room for complacency. The UK is still a long way from achieving the great, sustainable, long-term growth we want to see.
“Consumer spending is one of the key drivers in our growth upgrade. While there’s nothing wrong with consumer confidence, a balanced economy that will provide growth and jobs in the long term needs a much bigger contribution from business investment and exports.”
The BCC said it expected business investment to grow by 3.5% in 2015 compared with 6.8% in 2014, before recovering to 7%-plus growth in both 2016 and 2017. Exports are predicted to increase by 3.7% in 2015, up from the BCC’s previous forecast of 1.9%.
Longworth said: “This year’s slowdown in business investment is a clear warning sign that politicians must do everything they can to create a stable and positive investment environment, and ensure businesses can get access to the finance they need.
“Whilst UK exports made welcome progress at the end of 2014, imports are still increasing at a faster rate – and our growing current account deficit remains a huge challenge. With an unsustainable, negative balance, we have a way to go to reach the government’s 2020 export targets, and to restore our current account to health.”
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